• The two most important factors for development are franchisee validation and a strong sales process.

• Recruitment budgets were up in 2016.

• Half of ad spending for recruitment spending is for digital.

• Four in 10 brands still don’t track cost per lead or cost per sale.

• 44 percent of food brands exceeded their goals in 2016.

• International expansion for U.S. brands continues to grow.

Growth plans for 2017 from the 167 respondents target a total of 6,536 additional franchise units, 1,966 through existing franchisees and 3,843 from new franchisees. For comparison, last year’s growth plans from 134 brands targeted a total of 6,442 additional units; and for 2015 those numbers were 6,063 total new units from 139 brands.

Below are additional highlights from the 2017 AFDR.

The 2019 AFDR is based on responses from 109 franchisors representing 34,058 units (26,838 franchised and 7,220 company-owned).

Participants in the survey consisted of franchisors that completed an online questionnaire. Responses were aggregated and analyzed to produce a detailed look into the recruitment and development practices, budgets, and strategies of a wide cross-section of franchisors. The data and accompanying commentary and analysis provide the basis of the 2019 AFDR.

Highlights based on the AFDR data were:

Franchisors are becoming more targeted in their lead generation methods

Digital media still accounts for more than 50% of dollars spent

Budgets decreased slightly for 2019

The cost per lead and cost per sale were both up over 2018

35% don’t track cost per lead and 53% don’t track cost per sale

Franchisors exceeding goals have a lower cost per lead and sale with better lead conversion rates

For 2019, growth plans among the 109 respondents are targeting a total of3,617 additional franchise units. This compares with the previous year’s target of 5,990 additional franchise units from 142 respondents.

Below are additional highlights from the 2019 AFDR.

Average 2019 budget plans for franchise sales and recruitment (advertising and media expenses, not including brokers and employee compensation) among respondents was $186,818, with a median of $120,000. This is a decrease from last year, where the corresponding numbers were $202,462 and $140,000. While the budget numbers are down, they remain well within the range of planned spending during the previous 5 years.

With the increased emphasis and steady shift to online recruitment methods, the AFDR continued reporting on a new metric introduced last year: breaking out spending on franchise websites and social media from the “digital” category total. Adding spending on franchise websites (14 percent) and social media (12 percent) back in shows a total of 58 percent of overall digital spend, an increase from last year’s 52 percent. To provide finer granularity, we also continued tracking three new categories from last year—direct mail, in-market meetings, and TV/radio—which significantly reduced the “Other” category. Spending on print (8 percent) and trade shows (14 percent) was down slightly from 2018, while spending on public relations (13 percent) remained essentially the same as in the past 6 years. Total spending on digital accounted for the decreases in print and trade shows. In sum, recruitment spending is balanced and spread across multiple marketing methods and channels.

As digital spending continues to account for an increasing percentage of recruitment budgets, franchisors were asked to break out their digital spending by category. Last year, as we did with overall digital spending (above), we’ve added new categories that used to be included in other numbers: franchise opportunity sites (25 percent), social media advertising (11 percent), and digital asset creative (4 percent)—making direct comparisons with previous years more difficult, but also providing a deeper look into where development budgets are headed. This year we added another new category: Sponsored Content/Native Advertising (5 percent). Breaking out these categories reduced the “Other” category to a mere 2 percent, which compares with 4 percent in 2018 and 8 percent in 2017. Brands are becoming more aware of where they’re spending their money.

After taking the lead in 2012 as the top sales producer, digital took a hit in 2017, dropping from a remarkably steady 42 percent to just 31 percent. But for 2018 it rose to nearly half, at 47 percent. Yet, even with the growing reliance on digital, attribution remains uncertain. Where did the prospect who contacted the brand online begin their journey? Did they read a print article? See a television commercial? Hear a radio ad? See a billboard? Use the product or service and liked what they saw? As Phibbs put it at last year’s FLDC, “Where do they learn about the brand before they fill out the form on your website?” She said that while these percentages represent the #1 categories named by respondents as sales producers, she noted, “If you look at a weighted score of how franchisors ranked each category, digital comes out on top, with referrals, print, PR, trade shows and brokers all very close in rankings.” A big difference from previous years is referrals—still considered the strongest source of high-quality leads—which rose from about 30 percent in 2016 to 43 percent in 2017, but tumbled to 28 percent in 2018, in line with most previous years. “The good news,” noted Phibbs, “is that everything’s working to some extent.”

Respondents were asked to segment their digital spending as it relates to sales. No major changes here from previous years, other than a drop in SEO to 16 percent, its lowest percentage since 2013 (when it was an usually high 49 percent before settling into an average of 22.5 percent for 2014–2017). Sponsored content, a new category this year, accounted for 3 percent of digital sales. Portals, after a slight decline last year, returned to their average range of the previous 3 years to account for 1 in 3 sales. Remarketing as a digital sales source rose slightly. And at 9 percent, email marketing remained close to last year’s 10 percent, up from 4.5 percent 2015 and 6 percent in 2016. Phibbs noted that, as in the previous slide, a look at the weighted scores shows the rankings more balanced. Yet even in this age of extreme data, more than 1 in 10 respondents (12 percent) still checked off “Other” or “Don’t Know,” down from 21 percent last year, and slightly lower than the preceding years. Again, it may be worth looking into attribution. For brands that don’t know where more than 1 in 10 of their sales came from, there’s room for improvement.

Nearly 2 of 3 respondents (65 percent) said they track cost per lead, up slightly from 61 percent last year, and 56 percent the year before—so steady improvement there. Yet as franchise consultant Steve Olson is quick to point out, this also means that 1 in 3 brands still do not track cost per lead. And if you look at the 53 percent who track cost per sale, it means nearly half of respondent didn’t know what their cost per sale was—perhaps the most critical number in franchise development metrics. As we noted last year, “With all due respect to franchise sales teams, are you kidding?” And to further repeat last year’s observations, franchise recruitment experts continue to shake their heads at the number of franchise sales teams that set a budget, spend the money, and fail to measure the effectiveness of that effort and spend. Why 100 percent of brands don’t track these critical metrics remains a mystery—and could be one reason that so many development departments continue to miss their annual sales goals (see below). Among the two-thirds who do track these numbers, the average cost per lead reported in this year’s survey was $126, up from last year’s $112 and the previous year’s $109. And the average cost per sale of $8,984 edged up slightly from $8,571 in 2017 (up from $7,558 in 2016 and $6,300 the year before). So while average cost per lead remained about the same, average cost per sale continues to rise.

Many consider the three most important metrics in evaluating the effectiveness of a franchise development team to be the ratios of leads to sales, applications to sales, and discovery days to sales. All three ratios this year were within range of those from the previous 6 years. However, this year we made a change in the leads to sales question, specifying “qualified leads,” not all leads. This explains the huge increase to 14 percent from previous years, which were nearly all in the 2 to 3 percent range. This higher closing ratio speaks to the importance of having a pre-qualifier working at the front end of your sales process. Weeding out more “iffy” leads on the front end saves the sales team a lot of wasted effort during the next stages of the sales process. And, noted Phibbs, “With the number of leads going down and the applications and discovery days to sales ratios increasing, it looks like we’re reaching the right target audience.”

Last year we wondered if more unfit candidates were getting through to discovery days, if franchisors were becoming more selective in the final stage of the award process, or if the economy or financing issues were the reason for the decline. This year we’re hearing that greater uncertainty stemming from the sluggish economic recovery has dampened the appetite for risk among candidates, and that increased competition for prime real estate sites for the many brands that have similar footprints are contributing factors to the decline here. There are external threats to the franchise business model coming from regulators and legislators. Whether the threats are real or not, this could be another factor as candidates question the long-term viability of a brand’s profit model in light of possible future restrictions. Franchisors must examine their discovery day process to see where candidates are dropping out and conduct exit interviews with those who drop out, asking why.

Unlike last year, where brands exceeding their sales goals spent more on cost per lead than the average ($128 vs. $112), this year’s “exceeders” spent significantly less ($72 vs. $126). When it came to cost per sale, brands that exceeded their goals spent less than half of the average ($3,974 vs. $8,984). They also exceeded the average ratios for applications to sales (39 percent vs. 23 percent) and discovery days to sales (83 percent vs. 71 percent). Among other things, these numbers indicate that franchisors exceeding their goals are much more efficient in their recruitment spending than the average.

A comparison of the “exceeders” with last year’s respondents by industry segment shows the following:

Segment

2016

2015

Food

44%

59%

Retail non-food

9%

11%

Service (brick & morter)

30%

15%

Service (territory/pop.)

9%

11%

Retail Food

9%

4%

7 Differentiators

The following are seven of the most important things that the more successful brands have seen or done in their franchise recruitment and development efforts that helped them rise above the competition:

• Lower average cost per lead and cost per sale

• 75 percent reported the quality of their leads is up

• Higher conversion rate of qualified leads, applications, and discovery days to close

• Shorter time to deal close (10 weeks)

• 93 percent described unit-level business conditions as good (69 percent of franchisors below their goals described business conditions as good)